Corporate Structure for the non-business-oriented

As someone who has actively avoided working office jobs in big business, I'm mildly regretting my decision now that I'm hoping to touch on it in my writing (okay, not that much). I have a vague idea of the overall 'shape' of the hierarchy that would be present in my fictional megaconglomerate, but I'm at a bit of a loss as to what various positions might be called, and what their exact responsibilities to the organisation would be. Wondering if someone might impart some basic business-savvy to me?

I'm not trying to go into extreme detail about the business side of things - just be able to refer to it convincingly, and maybe understand who has power over who so it can direct my characterisations. I think it's the 'power' stuff that mostly eludes me - I've read over some of the basics on Wikipedia and understand how things are often set out, but this doesn't give me a feel for how it would be to be personally involved.

For instance, if I consider the upper eschelons, perhaps I'd have a CEO who would chair a Board of Directors (where perhaps each Director would be the head of a different department of the organisation). What might the relationship between a Director and the CEO be like?

Also interested in the distinction and relationship between an Owner and a CEO. And following on from that, who exactly would be the Owner of a corporation? I assume most are actually owned by multitudes of shareholders...

Sorry if my questions are a bit vague. I'm sure my naivete is showing (please do correct or further enlighten me as appropriate - especially if there are other major positions I should be considering, e.g. President, CFO, etc). I'll appreciate any wisdom offered!

It's important to know that a corporation is just one method of organizing a company or other, um, organization. It's usually selected for tax purposes.

Most of your questions aren't really answerable without more information. Here's a start:

How big is the corporation ? Large, publicly-traded corporations do indeed have many 'owners' (shareholders), but they have no influence over day-to-day operations. There are also large, closely-held corporations where a few people own all the shares (Hobby Lobby) and actually run the company. Likewise small corporations (like mine) owned and operated by one person who owns all the shares.

Very large corporations usually have a Board of Directors populated by people who don't work for the company. The CEO usually serves at the pleasure of the Board. Smaller companies (including some I've worked for) might have a BOD whose members are heads of departments inside the company.

Thank you stevesh, and apologies: I was vague, and I think I was ignorantly using 'corporation' as a general term for 'large company' when it actually means something more specific.

I referred to what I was interested in as a 'megaconglomerate' earlier, but should probably explain further: I'm envisioning a global organisation that has branches in most industries, privately owned. I like the idea of there being one person who could be considered 'the owner', but suspect that's probably unrealistic. Also like the idea that the Owner may not be actively involved in running the organisation, just interested that it's making money. However, I would like there to be one person who could be considered 'in charge of proceedings'. I assume they would be referred to as the CEO. I anticipate that there would then be a 'boss' of each industry-specific division (perhaps these would be the members of the BoD?), and then a cascading hierarchy of various managers, etc.

I'm mostly concerned with the realism/practicality of the structure I'm proposing, what other vital positions I've overlooked, and the interplay of power/influence between the various positions in the upper tiers. Also happy to hear anything else about business basics as I'm currently very uninformed.

Just to clarify a couple of points you made:
1. If the BoD don't work for the company, who are they exactly?
2. I'm being thick, but could you rephrase 'The CEO usually serves at the pleasure of the Board'? Is the implication that the Board will pander to the CEO?

Ok. Well, it can get a bit complicated, but here are some basics, in response to your specific query:

The CEO (Chief Executive Officer) is the head honcho, who runs the company day to day. The Board of Directors, though, are really the ones who have the final say, and they are the ones who appoint the CEO. It is possible for the CEO to also be a member of the board of directors -- sometimes you hear Chairman of the Board of Directors and CEO of such and such a company, but certainly not always. The Board is made up of people to represent the owners of the company -- that is, the shareholders. In a very large company, there are typically a lot of shareholders. You yourself might even be a partial owner of a company, if you own any stock. But there are so many shareholders that it would usually be impossible for all of them to get together and make decisions for the company. So they vote on a group of people to do this for them -- the Board of Directors. Typically, the people who serve on this Board have some kind of proven leadership skills, knowledge, and interest in the company. These people are often very busy and a Board only meets every so often -- maybe once a month or once or twice a year. So these folks appoint a CEO who reports to them, and deals with what is going on at the company. The CEO's whole waking life is kind of devoted to the company -- this is his or her career, his entire professional focus. (Whereas, for individual board members, they have a lot of other things going on.)

Again an owner of a company can be the CEO, and often is in a small corporation. There are private companies and public companies. Private companies are owned by a few people and don't divide up ownership of the company (via stock shares) to the general public. Public companies allow the general public to buy a portion of the company via the stock exchanges. The CEOs of large companies are also owners, as they are often compensated with a lot of stock, but they are not the only owners.

As far as other positions in a corporation -- there can be as many as it makes sense to have. Sometimes there is a Chief Financial Officer and a Chief Executive Officer. Sometimes both of these functions are performed by the CEO. Sometimes they are performed and overseen by a CEO, who might have a Vice President for Financial Affairs (or any title they make up that describes what he or she does.) Sometimes there are a whole bunch of different levels of Vice Presidents -- Senior Vice Presidents, Vice Presidents, Junior Vice Presidents, etc.) Sometimes within the company they might call people "Directors," but they're a Director or Senior Director within the company structure -- not a Director on the Board of Directors.

Basically, you can do whatever you want. The particular names don't matter all that much.

That's very informative chicagoliz! Thank you very much. I'm already able to consolidate a few of the ideas I've had. If it's not too presumptuous I'll have several other questions to ask, but I really should get some sleep now as I have some duties of care for the morning that will require it.

I look forward to pursuing this further tomorrow, if you kind people are still willing to entertain me!

I've had a sleep on it and come up with several other questions (shotgun approach rather than neatly ordered, unfortunately). It's comforting to know that a 'whatever you want' approach somewhat applies! although I would still like to understand how things are generally managed. Numbered for convenience:

1. So in a private company, the owners would generally be the ones running business? What kind of people would the owners tend to be? I imagine they’d originally be those who started the company, but as time goes on others would invest, buy out or enter partnership?

2. What are the responsibilities each member of a BoD would have? Are they people who have been elected as ‘interested parties’ for their individual views on how the company should be run overall (and the CEO finds compromise between all these views), or would each individual be given responsibility for a particular area within the company (and the CEO decides on a course of action based on information attained from each area)?

3. Would a private company still have a BoD? If so, how would the members relate to the ownership of the company, what other interests would they have in the company, and who would select them (the owners?)?

4. If not a BoD, what might you call a panel consisting of the heads of the companies various ‘departments’ (e.g. branches within different industries), and the chair who coordinates them (would that still be the CEO?)? Or is such a structure unrealistic?

5. Finally, if I understand correctly, a ‘corporation’ is a legal entity that exists as a cooperating body between several individuals, but the individuals themselves exist independently of the corporation. (I’ve probably phrased that incredibly clumsily...). How is the law administered in this framework? Who is responsible for amending transgressions made by a corporation? If a corporation is in legal trouble, what happens if it just dissolves?

Thanks once more for your patience with my being far from my comfort zone!

If by "private company" you mean one that is not legally a corporation, it could be organized as a partnership, an association or it could be a proprietorship. Legally, the choices are usually corporation, limited liability company, partnership or sole proprietorship. A corporation would have a board of directors, a partnership would be governed by the partners and an LLC could be either. Corporations can have a single shareholder, few shareholders or thousands of shareholders. They can be public corporations - that is, their shares are offered for sale to the public and traded on a public exchange, such as the New York Stock Exchange - or privately held. Public corporations with which you might be familiar include IBM, JP Morgan Chase and ExxonMobil. Major law firms (Covington and Burling, Cleary Gottlieb) and accounting firms (Ernst and Young, KPMG) are organized as partnerships. Nonpublic corporations have boards of directors.

In a typical large corporation, the board meets periodically - usually monthly, sometimes quarterly - to review the state of the business and approve major transactions or initiatives prepared by management, but unless there is a single person who, alone or with family, owns a controlling interest in the firm, the business is run by the CEO and the management team (s)he puts together.

A corporation is a separate, single legal entity, owned collectively by its shareholders. Its primary purpose is to protect individual shareholders from liability for any egregious acts of the entity. That means that when a corporation makes a defective product that kills people, or defiles the environment (just to name two popular examples), and the victims sue, the shareholders can lose all the assets of the corporation but nothing of theirs, personally. If the corporation tries to "just dissolve" when in legal trouble (by this I assume you mean that the corporation tries to liquidate, selling off its assets and returning the proceeds to the shareholders so that the plaintiffs can't get their hands on it), it would be easily thwarted by plaintiff's counsel, since the mere filing of the suit would preclude the corporation from doing so. Also, liquidating a major corporation takes years.

This notion of limited liability has been expanded in recent years with the development of limited liability companies (mostly for tax shenanigans) and limited liability partnerships (to protect lawyers and accountants from suffering loss of personal assets when they give really bad advice).

Your questions indicate a certain naivete about corporations as well as a general lack of knowledge. Both are correctable but the snippets of information you pick up here are not likely to suffice. You need to do some heavy-duty research. I strongly recommend you pick up a general introductory business text. Also, start reading some high quality business publications - Forbes, The Wall Street Journal, the business section of the New York Times, and Business Week are your best sources, and all are available in online editions. But beyond the basics, you also need to understand how and why people in corporations do what they do. One of the best books I ever read on management was Robert Townsend's Up The Organization, initially published in 1970 with an updated version, Further Up the Organization, twenty years later. Townsend is entertaining and brassily opinionated, but he also writes with the voice of experience, have been an investment manager at American Express and later CEO of Avis.

Lots of material to master, but a treasure trove of ideas for stories awaits. Best of luck.

As far as who runs a private company -- it could be the owners, or it could be someone hired by the owners. Some private corporations are very large -- Koch Industries, Dell Computers, so it's not always practical for the owners to be running every part of the corporation. A private company is just a company that is not public -- that is, the owners (shareholders) are limited to certain people. If one of the stockholders dies, either his or her shares go back to the company itself, or are split somehow among the other owners.

A private company would still have a Board of Directors, and again, it depends on the size of the company and on the individual owners, as far as who is on the BOD and what their roles might be. Some small companies might have members of the BOD who do all work for the company or take direct responsibility for certain aspects of the company. But others might still have some people on the BOD who are not involved with the day to day operations of the corporation, but do give advice and do make decisions regarding the company.

The purpose for a corporation's existence is to grant it a legal status that is completely independent from the owners and workers. The biggest reason for this is to shield the owners from liability, as Ed mentioned. If someone wants to start a company, there is always risk -- risk that the product will not sell, that the product will injure or kill someone, that bad financial decisions will be made, etc. People would be reluctant to start or own corporations if, when one of these things occurred, they would be in danger of losing all of their own personal assets. So a corporation is its own legal entity -- it can borrow money in its own name, it can sue and be sued, it can purchase things, etc. But, obviously, this legal status doesn't confer a brain unto the corporation, so *someone* has to actually make the decisions about what should be done as far as borrowing money, buying things, whether to sue, etc. The BOD makes those decisions (or often, gives approval to a proposed course of action that has been suggested by the CEO or other people within the organization.)

Again, the CEO might or might not be a member of the BOD. He or she provides the Board with information about the company, and answers to them. The Board can fire him or her if they are not pleased. The person "in charge" of the BOD would be the Chairman of the Board of Directors, who is elected by other directors. In some cases the Chair of the BOD can be the CEO (if he or she is also a member of the BOD), but not always.

If a corporation dissolves, assets are distributed among various entities -- creditors and owners. If it dissolves while in the midst of some legal dispute, the court would not allow the owner/shareholders to take the money and run -- money would be set aside for a possible verdict, the court might not allow the company to dissolve, but might appoint a trustee to run/oversee the corporation during the dispute, there are situations where certain shareholders could be held personally liable if it could be shown they were acting in their own interests, contrary to those of the corporation or that the corporate structure were merely a sham for an owner's personal needs. If it were to dissolve through Bankruptcy, all other litigation is stayed until the stay is lifted by the Bankruptcy court. Money for the wrong committed by the corporation is treated as other creditors, and the Bankruptcy Court would determine how much money everyone gets. Shareholders are paid last.

EdFromNY - I was referring to 'private company' as chicagoliz had defined it above (shares not publicly traded).
You're certainly right about my naivete and lack of knowledge, but I thank you for helping to alleviate it. I think I understand things to some extent on a 'macro' scale, but am very ignorant on 'micro'. I find the terminology a bit ambiguous and hard to pin down (apparently as with the vagueness of 'private company') - perhaps I'm too used to disciplines where terms are tightly defined (or maybe I'm just slow).
I've started reading an introductory business text: not up to anything I was specifically curious about yet, but the chapters on economics and ethics have been interesting. I shall look up Townsend's books in a few months when I'll have more time to devote to my reading/writing. Thanks for your recommendations!

I think I now have a basic understanding of the structure I was interested in (as well as the various other topics that arose...), thanks to your kind and detailed responses. Will probably stop asking questions soon, and be able to pick up whatever else I need from my reading. Two last ones though!:

1. (This one may be obvious, but) if corporations aim to shield from personal liability, how is it that individuals can still serve jail terms, etc for transgressions? For instance, I was reading about WorldCom's accounting scandals, which resulted in sentences for the CEO and CFO amongst others. I assume this happens when an individual's illegal actions are proven to be in their own interest and not the corporation's?

2. If a corporation exists as its own legal entity, and can receive shares back when a stockholder dies... what happens if it ends up 'owning itself'' (given that its legal status has not conferred a brain )? I imagine management could choose to trade stock back out, but what if, for instance, liquidation occurred? How would the assets be distributed? To use an extreme (and probably silly) example, what if the corporation ended up as its own single shareholder?

1. (This one may be obvious, but) if corporations aim to shield from personal liability, how is it that individuals can still serve jail terms, etc for transgressions? For instance, I was reading about WorldCom's accounting scandals, which resulted in sentences for the CEO and CFO amongst others. I assume this happens when an individual's illegal actions are proven to be in their own interest and not the corporation's?

Click to expand...

No. What you are referring to are members of corporate management, the ones who make the decisions committing the corporation to illegal acts. The shareholders are deemed to be passive investors not responsible for the actions of the corporation.

2. If a corporation exists as its own legal entity, and can receive shares back when a stockholder dies... what happens if it ends up 'owning itself'' (given that its legal status has not conferred a brain )? I imagine management could choose to trade stock back out, but what if, for instance, liquidation occurred? How would the assets be distributed? To use an extreme (and probably silly) example, what if the corporation ended up as its own single shareholder?

Click to expand...

When a corporation is liquidated, the shareholder(s) at the time of the liquidation receive the assets (or cash once the assets are sold off) in direct proportion to their ownership interest. A corporation cannot "own itself". When a shareholder dies, the shares do not revert back to the corporation. They would pass to whomever is designated in the shareholder's will. Corporations can buy back or redeem shares, but then must pay out full value for them. So, if a corporation buys back all of its shares, it would have to pay out all of its value. In other words, liquidation.

If one of the stockholders dies, either his or her shares go back to the company itself, or are split somehow among the other owners.

Click to expand...

So I'm a little confused now, although your response got me to think a little more in-depth about what shares actually are. I suppose for a company to buy back its shares from a stockholder, the value of said shares would disintegrate, such that there would be a relative increase in the remaining shares' value (probably clumsily phrased once again).

So presumably if a shareholder is also involved in management, they would be held responsible for the actions of the corporation?

Click to expand...

If it can be shown that those actions took place under his/her managerial authority, yes.

I think @chicagoliz' explanation might pertain to privately held corporate stock (i.e. not publicly traded), but the corporate charter would have to specifically stipulate that, as well as the compensation to be paid to the dead shareholder's estate.

Yes, shares of a publicly held corporation are like any other property -- they can be sold, inherited, gifted, etc.
In a private company, it is possible that the shares could also be transferred. But often private companies limit the people who can be shareholders -- often limited to a single family, or some group of people that has been previously determined. All of these would be in the corporate charter or other incorporation documents. There are corporate legal documents that would spell out what happens to the shares if someone dies or wishes to divest himself of them.

A corporation is generally not allowed to engage in an illegal criminal act. (Often a corporate purpose is simply listed as "all legally allowable endeavors" or some similar term.) So, by definition, a management team member who willfully engages in a criminal act is doing something not allowed by the corporate charter.) People can be deemed to have acted outside their corporate authority. (Also, the whole corporate structure can be disregarded -- called "piercing the corporate veil," if it can be shown that a corporation is being used just as a sham or cover for the owner's personal life.)

If you really want to understand corporate structure, you could search for a book in the Nutshell series -- these are geared for law students, but they spell out everything in particular areas of law in easy-to-understand chunks. There must be one called something like Corporate Law in a Nutshell.

That will explain all the differences in structures and the underlying reasons for them. It would be a good reference book for any corporate-structure type question you might have, if you really need to know this sort of stuff for a story.

So presumably if a shareholder is also involved in management, they would be held responsible for the actions of the corporation?

My second question was inspired by:

So I'm a little confused now, although your response got me to think a little more in-depth about what shares actually are. I suppose for a company to buy back its shares from a stockholder, the value of said shares would disintegrate, such that there would be a relative increase in the remaining shares' value (probably clumsily phrased once again).

If a Company is Public then it's shares are bought and sold on a Stock Market.

Shareholders own a tiny slice of the company, reflected by each share they own. All the shares together represents all of the company.

Shareholders appoint a Board of Directors to run the company.

The Board of Directors appoint a person to take the major decisions subject to the agreement of the Board.

This person may be the Chief Executive Officer, or the Managing Director or the President.

There may be a Chairman. That person is not usually involved in day to say decisions and actions and is usually a former CEO or someone the shareholders have huge respect for as a curator of the business.

If the Company is private, the shares can only be exchanged through private transactions. There is no public market.

Often in a private company there is a Shareholders Agreement or a stockholders agreement. That agreement may limit who can buy stock and who can sell it. It may also direct that certain shareholders must get first option of shares being sold. These agreements most often appear in family owned companies. The agreement would also cover a death. They would have to be offered to a certain shareholder first and then another second perhaps.

A Shareholders Agreement is agreed to by all shareholders, old or new. This may also decide who gets how many directorships. For example it may say that those with less than 5% get one directorship each, while those with more than 30% get two directorships each, etc. It may also have other rules over

Depending on the country, a Company can buy back it's shares at market value or a value previously agreed. This makes the remaining shares increase in value. Say there are 50 shares of a one million dollar company. Therefore each share is worth 20,000. If the Company buys back 10 shares then there only remains 40 shares. So each share is now worth 25,000.

The Company cannot buy them all back as a Company needs to have people as shareholders. And remember different countries have very different rules.

Wikipedia has a lot of information on Company, Shareholders Agreement etc etc.

This is not correct. "Corporation" has a legal meaning, and it refers to a business entity that is registered with and *incorporated* in a particular state. It might be true that in countries other than the United States, these terms are interchangeable. Laypeople might use them interchangeably, but they are not exactly the same thing. The rest of the post is largely correct, but there are nuances and exceptions that are most likely not relevant to the OP's story.

This is not correct. "Corporation" has a legal meaning, and it refers to a business entity that is registered with and *incorporated* in a particular state. It might be true that in countries other than the United States, these terms are interchangeable. Laypeople might use them interchangeably, but they are not exactly the same thing. The rest of the post is largely correct, but there are nuances and exceptions that are most likely not relevant to the OP's story.

Click to expand...

It is self evident that almost all of these terms have variations depending on what country is concerned. Hence the equating of Company, an entity that is legally incorporated, to Corporation is indeed essentially correct and accurate.

It is self evident that almost all of these terms have variations depending on what country is concerned. Hence the equating of Company, an entity that is legally incorporated, to Corporation is indeed essentially correct and accurate.

Click to expand...

Okay, but your statement that "company" was merely an American synonym for "corporation" remains incorrect. "Corporation" has a legal meaning.